UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 0-28274

Sykes Enterprises, Incorporated

(Exact name of Registrant as specified in its charter)

Florida		56-1383460
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

400 North Ashley Drive, Tampa, FL 33602
(Address of principal executive offices) (Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of July 24, 2009, there were 41,321,938 outstanding shares of common stock.

 

 

Sykes Enterprises, Incorporated and Subsidiaries

INDEX

		Page
		No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets June 30, 2009 and December 31, 2008 (Unaudited)			3
Condensed Consolidated Statements of Operations Three and six months ended June 30, 2009 and 2008 (Unaudited)			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity Six months ended June 30, 2008, six months ended December 31, 2008 and six months ended June 30, 2009 (Unaudited)			5
Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2009 and 2008 (Unaudited)			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			8
Report of Independent Registered Public Accounting Firm			40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			55
Item 4. Controls and Procedures			56
Part II. Other Information
Item 1. Legal Proceedings			57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57
Item 4. Submission of Matters to a Vote of Security Holders			58
Item 6. Exhibits			58
Signature			59
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1		— Financial Statements

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands, except per share data)		June 30, 2009				December 31, 2008
Assets
Current assets:
Cash and cash equivalents		$	238,904			$	219,050
Receivables, net			165,744				157,067
Prep aid expenses			9,597				7,084
Other current assets			11,723				13,317
Total current assets			425,968				396,518
Property and equipment, net			81,223				80,390
Goodwill			21,142				23,191
Intangibles, net			2,564				4,586
Deferred charges and other assets			23,870				24,857
		$	554,767			$	529,542
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	17,941			$	26,419
Accrued employee compensation and benefits			50,058				47,194
Income taxes payable			1,366				4,485
Deferred revenue			29,936				26,955
Other accrued expenses and current liabilities			15,614				21,057
Total current liabilities			114,915				126,110
Deferred grants			11,804				9,340
Long-term income tax liabilities			5,037				5,077
Other long-term liabilities			4,577				4,985
Total liabilities			136,333				145,512
Commitments and loss contingency (Note 14)
Shareholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued and outstanding			—				—
Common stock, $0.01 par value, 200,000 shares authorized; 41,530 and 41,271 shares issued			415				413
Additional paid-in capital			160,273				158,216
Retained earnings			266,306				237,188
Accumulated other comprehensive (loss)			(4,118	)			(10,683	)
Treasury stock at cost: 328 shares and 96 shares			(4,442	)			(1,104	)
Total shareholders’ equity			418,434				384,030
		$	554,767			$	529,542

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Operations
(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except per share data)		2009				2008				2009				2008
Revenues		$	208,839			$	207,629			$	412,080			$	411,350
Operating expenses:
Direct salaries and related costs			133,727				133,708				263,980				264,688
General and administrative			56,477				57,355				111,965				113,779
Impairment loss on goodwill and intangibles			1,584				—				1,584				—
Total operating expenses			191,788				191,063				377,529				378,467
Income from operations			17,051				16,566				34,551				32,883
Other income (expense):
Interest income			605				1,258				1,456				3,080
Interest (expense)			(237	)			(125	)			(351	)			(227	)
Impairment (loss) on investment in SHPS			(2,089	)			—				(2,089	)			—
Other income			275				3,733				1,095				4,264
Total other income (expense)			(1,446	)			4,866				111				7,117
Income before provision for income taxes			15,605				21,432				34,662				40,000
Provision for income taxes			1,257				3,703				5,544				6,561
Net income		$	14,348			$	17,729			$	29,118			$	33,439
Net income per share:
Basic		$	0.35			$	0.44			$	0.72			$	0.82
Diluted		$	0.35			$	0.43			$	0.71			$	0.82
Weighted average shares:
Basic			40,654				40,599				40,632				40,545
Diluted			40,953				40,953				40,999				40,860

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity
Six Months Ended June 30, 2008, Six Months Ended December 31, 2008 and
Six Months Ended June 30, 2009
(Unaudited)

																		Accumulated
		Common Stock								Additional								Other
		Shares								Paid-in				Retained				Comprehensive				Treasury
(In thousands)		Issued				Amount				Capital				Earnings				Income (Loss)				Stock				Total
Balance at January 1, 2008			45,537			$	455			$	184,184			$	195,203			$	37,457			$	(51,978	)		$	365,321
Adjustment upon adoption of EITF 06-10			—				—				—				(482	)			—				—				(482	)
Issuance of common stock			90				1				1,087				—				—				—				1,088
Stock-based compensation expense			—				—				2,357				—				—				—				2,357
Excess tax benefit from stock- based compensation			—				—				591				—				—				—				591
Issuance of common stock and restricted stock under equity award plans			226				2				76				—				—				(114	)			(36	)
Retirement of treasury stock			(4,644	)			(46	)			(33,346	)			(18,094	)			—				51,486				—
Comprehensive income (loss)			—				—				—				33,439				(14,997	)			—				18,442
Balance at June 30, 2008			41,209				412				154,949				210,066				22,460				(606	)			387,281
Issuance of common stock			15				—				86				—				—				—				86
Stock-based compensation expense			—				—				2,399				—				—				—				2,399
Excess tax benefit from stock- based compensation			—				—				121				—				—				—				121
Issuance of common stock and restricted stock under equity award plans			10				1				(15	)			—				—				14				—
Repurchase of common stock			—				—				—				—				—				(512	)			(512	)
Issuance of common stock for business acquisition			37				—				676				—				—				—				676
Comprehensive income (loss)			—				—				—				27,122				(33,143	)			—				(6,021	)
Balance at December 31, 2008			41,271				413				158,216				237,188				(10,683	)			(1,104	)			384,030
Issuance of common stock			14				—				71				—				—				—				71
Stock-based compensation expense			—				—				2,800				—				—				—				2,800
Excess tax benefit from stock- based compensation			—				—				123				—				—				—				123
Issuance of common stock and restricted stock under equity award plans			245				2				(937	)			—				—				(145	)			(1,080	)
Repurchase of common stock			—				—				—				—				—				(3,193	)			(3,193	)
Comprehensive income			—				—				—				29,118				6,565				—				35,683
Balance at June 30, 2009			41,530			$	415			$	160,273			$	266,306			$	(4,118	)		$	(4,442	)		$	418,434

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2009 and 2008
(Unaudited)

(in thousands)		2009				2008
Cash flows from operating activities:
Net income		$	29,118			$	33,439
Depreciation and amortization, net			13,938				14,196
Impairment losses			3,673				—
Unrealized foreign currency transaction (gains), net			(1,538	)			—
Stock-based compensation expense			2,800				2,357
Excess tax benefit from stock-based compensation			(123	)			(591	)
Deferred income tax provision (benefit)			330				(129	)
Net loss on disposal of property and equipment			36				—
Bad debt expense			774				349
Write down of value added tax credit receivables			320				361
Unrealized loss on financial instruments, net			349				985
Amortization of discount on short-term investments			—				(173	)
Amortization of actuarial gains on pension			(30	)			(35	)
Foreign exchange (gain) on liquidation of foreign entities			(1	)			(10	)
Amortization of unrealized (gain) on post retirement obligation			(19	)			—
Changes in assets and liabilities:
Receivables			(9,007	)			(16,745	)
Prepaid expenses			(2,205	)			(3,031	)
Other current assets			(588	)			752
Deferred charges and other assets			(1,507	)			(86	)
Accounts payable			(4,295	)			(1,174	)
Income taxes receivable/payable			(2,682	)			(3,852	)
Accrued employee compensation and benefits			2,649				2,578
Other accrued expenses and current liabilities			(434	)			(14	)
Deferred revenue			1,941				1,101
Other long-term liabilities			(10	)			675
Net cash provided by operating activities			33,489				30,953
Cash flows from investing activities:
Capital expenditures			(18,308	)			(16,248	)
Proceeds from sale of property and equipment			162				67
Sale of short-term investments			—				17,535
Investment in restricted cash			—				(997	)
Proceeds from release of restricted cash			839				858
Other			(2	)			(126	)
Net cash (used for) provided by investing activities			(17,309	)			1,089

Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2009 and 2008
(Unaudited)

(in thousands)		2009				2008
Cash flows from financing activities:
Proceeds from issuance of stock			71				1,088
Excess tax benefit from stock-based compensation			123				591
Cash paid for repurchase of common stock			(3,193	)			—
Proceeds from grants			3,440				—
Shares repurchased for minimum tax withholding on restricted stock			(1,080	)			—
Net cash (used for) provided by financing activities			(639	)			1,679
Effects of exchange rates on cash			4,313				(2,998	)
Net increase in cash and cash equivalents			19,854				30,723
Cash and cash equivalents — beginning			219,050				177,682
Cash and cash equivalents — ending		$	238,904			$	208,405
Supplemental disclosures of cash flow information:
Cash paid during period for interest		$	630			$	220
Cash paid during period for income taxes		$	6,274			$	9,974
Non-cash transactions:
Property and equipment additions in accounts payable		$	1,338			$	1,485
Unrealized gain on post retirement obligation in accumulated other comprehensive income (loss)		$	461			$	—

See accompanying notes to condensed consolidated financial statements.

Sykes Enterprises, Incorporated and Subsidiaries

Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) provides outsourced customer contact management solutions and services in the business process outsourcing arena to companies, primarily within the communications, financial services, healthcare, technology/consumer and transportation and leisure industries. SYKES provides flexible, high quality outsourced customer contact management services (with an emphasis on inbound technical support and customer service), which includes customer assistance, healthcare and roadside assistance, technical support and product sales to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communications channels encompassing phone, e-mail, Web and chat. SYKES complements its outsourced customer contact management services with various enterprise support services in the United States that encompass services for a company’s internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services including multilingual sales order processing via the Internet and phone, payment processing, inventory control, product delivery and product returns handling. The Company has operations in two geographic regions entitled (1) the Americas, which includes the United States, Canada, Latin America, India and the Asia Pacific Rim, in which the client base is primarily companies in the United States that are using the Company’s services to support their customer management needs; and (2) EMEA, which includes Europe, the Middle East and Africa.

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2009. For further information, refer to the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission (“SEC”). Subsequent events have been evaluated through the date and time the condensed consolidated financial statements were issued on August 5, 2009. No material subsequent events have occurred since June 30, 2009 that required recognition or disclosure in our condensed consolidated financial statements.

Property and Equipment — The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable cash flows (the “reporting unit”). An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals or sales prices of comparable assets. Occasionally, the Company redeploys property and equipment from under-utilized centers to other locations to improve capacity utilization if it is determined that the related undiscounted future cash flows in the under-utilized centers would not be sufficient to recover the carrying amount of these assets. The Company determined that its property and equipment was not impaired as of June 30, 2009.

Investment in SHPS — The Company holds a noncontrolling interest in SHPS, Inc. (“SHPS”), which was accounted for at cost of approximately $2.1 million as of December 31, 2008 and was included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. In June 2009, the Company received notice from SHPS that the shareholders of SHPS had approved a merger agreement between SHPS and SHPS Acquisition, Inc., pursuant to which the common stock of SHPS, including the common stock owned by the Company, would be converted into the right to receive $0.000001 per share in cash. SHPS informed the Company that it believes the estimated fair value of the SHPS common stock to be equal to such per share amount. As a result of this transaction and evaluation of the Company’s legal options, the Company believes it is more likely than not that we will not be

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Investment in SHPS — (continued)

able to recover the $2.1 million carrying value of the investment in SHPS. Therefore, due to the decline in value that is other than temporary, management recorded a non-cash impairment loss of $2.1 million included in “Impairment loss on investment in SHPS” in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 (none in the comparable 2008 periods). See Note 2 for further information.

Goodwill — The Company accounts for goodwill and other intangible assets under SFAS No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” Goodwill and other intangible assets with indefinite lives are not subject to amortization, but instead must be reviewed at least annually, and more frequently in the presence of certain circumstances, for impairment by applying a fair value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under SFAS 142, the carrying value of assets is calculated at the lowest levels for which there are identifiable cash flows (the “reporting unit”). If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. The Company completed its annual goodwill impairment test during the third quarter of 2008, which included the consideration of recent economic developments and determined that the carrying amount of goodwill was not impaired. Subsequently, during the second quarter of 2009, based on the presence of certain circumstances, the Company recorded an impairment loss on goodwill related to the March 2005 acquisition of Kelly, Luttmer & Associates Limited (“KLA”). See Note 2 for further information. The Company expects to receive future benefits from the remaining previously acquired goodwill over an indefinite period of time.

Intangible Assets — Intangible assets, primarily customer relationships, existing technologies and covenants not to compete, are amortized using the straight-line method over their estimated useful lives which approximates the pattern in which the economic benefits of the assets are consumed. The Company periodically evaluates the recoverability of intangible assets and takes into account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that an impairment exists. Fair value for intangible assets is based on discounted cash flows, market multiples and/or appraised values as appropriate. The Company does not have intangible assets with indefinite lives. During the second quarter of 2009, based on changes in circumstances, the Company recorded an impairment loss on intangible assets related to the KLA acquisition mentioned above. See Note 2 for further information.

Value Added Tax Credit Receivables — The Philippine operations are subject to Value Added Tax (“VAT”), which is usually applied to all goods and services purchased throughout the Philippines. Upon validation and certification of the VAT credit receivables by the Philippine government, the VAT credit receivables are held for sale through third-party brokers. The Company sells VAT credits to others due to its current tax holiday status in the Philippines and resulting inability to fully utilize these credits. This process through collection typically takes three to five years. The VAT credit receivables balance recorded at net realizable value, which approximates fair value, is approximately $7.1 million and $7.5 million as of June 30, 2009 and December 31, 2008, respectively. See “Fair Value Measurements” in this Note 1 for further information. As of June 30, 2009 and December 31, 2008, the VAT credit receivables of $5.9 million and $4.9 million, respectively, are included in “Deferred Charges and Other Assets”, $1.1 million and $1.1 million, respectively, are included in “Other Current Assets” and $0.1 million and $1.5 million, respectively, are included in “Receivables” in the accompanying Condensed Consolidated Financial Statements. During the three and six months ended June 30, 2009, the Company determined that a portion of the VAT credit receivable balance was not recoverable and wrote down the balance by $0.1 million and $0.3 million, respectively. During the comparable 2008 periods, the Company wrote down the balance by $0.2 million and $0.4 million, respectively.

Stock-Based Compensation — The Company has three stock-based compensation plans: the 2001 Equity Incentive Plan (for employees and certain non-employees), the 2004 Non-Employee Director Fee Plan (for non-employee directors), both approved by the shareholders, and the Deferred Compensation Plan (for certain eligible employees).

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Stock-Based Compensation — (continued)

All of these plans are discussed more fully in Note 12. Stock-based awards under these plans may consist of common stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights, restricted stock and other stock-based awards. The Company issues common stock and treasury stock to satisfy stock option exercises or vesting of stock awards.

The Company recognizes in its statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is measured to fair-value at each balance sheet date until the award is settled.

Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

	•		Cash, Accounts Receivable, Value Added Tax Credit Receivables, Short-term and Other Investments, Investments Held in Rabbi Trust and Accounts Payable. The carrying values reported in the balance sheet for cash, accounts receivable, value added tax credit receivables, short-term investments, investments held in rabbi trust and accounts payable approximate their fair values.
	•		Foreign currency forward contracts. Foreign currency forward contracts are recognized in the balance sheet at fair value based on quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions.
	•		Long-Term Debt. The fair value of long-term debt, including the current portion thereof, is estimated based on the quoted market price for the same or similar types of borrowing arrangements. As of June 30, 2009 and December 31, 2008, the Company had no outstanding long-term debt.

Fair Value Measurements — Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157 (SFAS 157), “Fair Value Measurements” and SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment to FASB Statement No. 115”. SFAS 157, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

SFAS 159 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. Since the date of adoption on January 1, 2008, the Company has not elected to use the fair value option permitted under SFAS 159 for any of its financial assets and financial liabilities that are not already recorded at fair value.

A description of the Company’s policies regarding fair value measurement is summarized below.

Fair Value Hierarchy — SFAS 157 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair-value hierarchy:

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Fair Value Measurements — (continued)

	•		Level 1 — Quoted prices for identical instruments in active markets.
	•		Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
	•		Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Determination of Fair Value — The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

The following section describes the valuation methodologies used by the Company to measure fair value, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.

Money Market Funds and Open-end Mutual Funds — The Company uses quoted market prices in active markets to determine the fair value of money market funds and open-end mutual funds, which are classified in Level 1 of the fair value hierarchy.

Foreign Currency Forward Contracts — The Company enters into foreign currency forward contracts over the counter and values such contracts using a discounted cash flows model. The key inputs include forward foreign currency exchange rates and interest rates. The item is classified in Level 2 of the fair value hierarchy.

Investments Held in Rabbi Trust — The Company maintains a non-qualified deferred compensation plan structured as a rabbi trust for certain eligible employees. The investment assets of the rabbi trust are valued using quoted market prices multiplied by the number of shares held in the trust, which are classified in Level 1 of the fair value hierarchy. For additional information about our deferred compensation plan, see Notes 5 and 12.

Guaranteed Investment Certificates — Guaranteed investment certificates, with variable interest rates linked to the prime rate, approximate fair value due to the automatic ability to reprice with changes in the market; such items are classified in Level 2 of the fair value hierarchy.

Value Added Tax Credit Receivables — The VAT credit receivables are recorded at net realizable value, which approximates fair value. The Company determines the net realizable value based on estimated discounted future cash flows using such factors as historical sales experience and current market conditions. Such items are classified in Level 3 of the fair value hierarchy.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Foreign Currency Translation — The assets and liabilities of the Company’s foreign subsidiaries, whose functional currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the reporting date, and income and expenses are translated at the weighted average exchange rate during the period. The net effect of translation gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive income (loss)”, which is reflected as a separate component of shareholders’ equity until the sale or until the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency transactional gains and losses are included in “Other income (expense)” in the accompanying Condensed Consolidated Statements of Operations.

Foreign Currency and Derivative Instruments — The Company accounts for financial derivative instruments under SFAS No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities”, as amended. The Company generally utilizes non-deliverable forward contracts expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in non-functional foreign currencies. Upon proper qualification, these contracts are accounted for as cash-flow hedges, as defined by SFAS 133. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates. In using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.

All derivatives, including foreign currency forward contracts, are recognized in the balance sheet at fair value. On the date the derivative contract is entered into, the Company determines whether the derivative contract should be designated as a cash flow hedge. Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)”, until the forecasted underlying transactions occur. Any realized gains or losses resulting from the cash flow hedges are recognized together with the hedged transaction within “Revenues”. Cash flows from the derivative contracts are classified within “Cash flows from operating activities” in the accompanying Condensed Consolidated Statement of Cash Flows. Ineffectiveness is measured based on the change in fair value of the forward contracts and the fair value of the hypothetical derivatives with terms that match the critical terms of the risk being hedged. Hedge ineffectiveness is recognized within “Revenues”.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging activities. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring, the Company discontinues hedge accounting prospectively. At June 30, 2009, all hedges were determined to be highly effective.

The Company also periodically enters into forward contracts that are not designated as hedges as defined under SFAS 133. The purpose of these derivative instruments is to reduce the effects on its operating results and cash flows from fluctuations caused by volatility in currency exchange rates. The Company records changes in the fair value of these derivative instruments within “Revenues” or “Other income”, depending on the purpose of the hedge, in the accompanying Condensed Consolidated Statements of Operations. See Note 4 for further information on financial derivative instruments.

Recent Accounting Pronouncements — In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 (SFAS 157), “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The Company adopted the provisions of SFAS 157 on January 1, 2008. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 2 — Fair Value for further information.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Recent Accounting Pronouncements — (continued)

In March 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 06-10 (EITF 06-10), “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements.” EITF 06-10 provides guidance on the employer’s recognition of assets, liabilities and related compensation costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an employee that extends into postretirement periods. The Company adopted the provisions of EITF 06-10 on January 1, 2008. As a result of the implementation of EITF 06-10, the Company recognized a $0.5 million liability for a postretirement benefit obligation related to a split dollar arrangement on behalf of its founder and former Chairman and Chief Executive Officer which was accounted for as a reduction to the January 1, 2008 balance of retained earnings. See Note 13 — Defined Benefit Pension Plan and Post-Retirement Benefits for further information.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), “Business Combinations” and SFAS No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51”. SFAS 141R changes how business acquisitions are accounted for and impacts financial statements both on the acquisition date and in subsequent periods. SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of shareholders’ equity. On January 1, 2009, the Company adopted the provisions of SFAS 141R and SFAS 160. SFAS 141R will be applied prospectively for all business combinations entered into after January 1, 2009, the date of adoption. The provisions of SFAS 160 will also be applied prospectively to all noncontrolling interests, except for the presentation and disclosure provisions which are applied retrospectively to any noncontrolling interests that arose before January 1, 2009. The adoption of these standards did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161 (SFAS 161), “Disclosures About Derivative Instruments and Hedging Activities”, which amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, by requiring increased qualitative, quantitative, and credit-risk disclosures about an entity’s derivative instruments and hedging activities. On January 1, 2009, the Company adopted the provisions of SFAS 161. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 4 — Financial Derivatives for further information.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3 (FSP 142-3), “Determination of the Useful Life of Intangible Assets". FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. The Company adopted the provisions of FSP 142-3 on January 1, 2009. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In December 2008, the FASB issued FSP No. FAS 132(R)-1 (FSP 132R-1), “Employers Disclosures about Postretirement Benefit Plan Assets”, which provides additional guidance on an employers’ disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP 132R-1 is effective for financial statements issued for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact of adopting FSP 132R-1 on its financial condition, results of operations and cash flows.

In April 2009, the FASB issued FSP No. FAS 141(R)-1 (FSP 141(R)-1), “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies", which amends the guidance in SFAS 141R to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with FASB Statement No. 5, "Accounting for Contingencies”, and FASB Interpretation (FIN) No. 14, “Reasonable Estimation of the Amount of a Loss”. Further, the FASB decided to remove the subsequent accounting guidance for

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Recent Accounting Pronouncements — (continued)

assets and liabilities arising from contingencies from Statement 141R, and carry forward without significant revision the guidance in SFAS 141R. Like SFAS 141R, FSP 141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations whose acquisition date is on or after January 1, 2009.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1 (FSP 107-1), “Interim Disclosures about Fair Value of Financial Instruments", which amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments", and APB Opinion No. 28, “Interim Financial Reporting”, to extend the annual disclosures about fair value of financial instruments to interim reporting periods. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009, and was adopted on April 1, 2009. The adoption of FSP 107-1 did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 1- Basis of Presentation and Summary of Significant Accounting Policies — Fair Value Measurements for further information.

In April 2009, the FASB issued FSP No. FAS 157-4 (FSP 157-4), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly", which amends SFAS 157, “Fair Value Measurements", and supersedes FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”. FSP 157-4 provides additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability. FSP 157-4 also provides guidance on circumstances that may indicate a transaction is not orderly (that is, distressed or forced). FSP 157-4 is effective on a prospective basis for interim and annual reporting periods ending after June 15, 2009, and was adopted on April 1, 2009. The adoption of FSP 157-4 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2 (FSP 115-2), “Recognition and Presentation of Other-Than Temporary Impairments", which amends the recognition and presentation of other-than-temporary impairments for debt securities and provides new disclosure requirements for both debt and equity securities. Upon adoption of the provisions of FSP 115-2, the non-credit component of previously recognized other-than-temporary impairment on debt securities held on that date is reclassified from Retained Earnings to Accumulated Other Comprehensive Income and reported as a cumulative-effect adjustment as of the beginning of the period of adoption, if the entity does not intend to sell the security and it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis. FSP 115-2 is effective for interim and annual reporting periods ending after June 15, 2009, and was adopted on April 1, 2009. The adoption of FSP 115-2 did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 5 — Investments Held in Rabbi Trust for further information.

In May 2009, the FASB issued SFAS No. 165 (SFAS 165), “Subsequent Events", which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. SFAS 165 is effective on a prospective basis for interim or annual periods ending after June 15, 2009, and was adopted on April 1, 2009. This standard did not have a material impact on the Company’s financial condition, results of operations and cash flows.

In June 2009, the FASB issued SFAS No. 168 (SFAS 168), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162”. SFAS 168 states that the FASB Accounting Standards Codification (“Codification”) will become the single source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB. The Codification and all of its contents, which changes the referencing of financial standards, will carry the same level of authority, effectively superseding SFAS 162. In other words, the GAAP hierarchy will be modified to include only two levels of GAAP, authoritative and nonauthoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Therefore, in the third quarter of 2009, all references made to GAAP will use the new Codification numbering system prescribed by the FASB. As the Codification is not intended

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies — (continued)

Recent Accounting Pronouncements — (continued)

to change or alter existing GAAP, it is not expected to have an impact on the Company’s financial condition, results of operations and cash flows.

Note 2 — Fair Value

The Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 subject to the requirements of SFAS 157 consist of the following (in thousands):

						Fair Value Measurments at June 30, 2009 Using:
						Quoted Prices				Significant
						in Active				Other				Significant
						Markets For				Observable				Unobservable
		Balance at				Identical Assets				Inputs				Inputs
		June 30, 2009				Level (1)				Level (2)				Level (3)
Assets:
Money Market Funds and Open-end Mutual Funds (1)		$	87,780			$	87,780			$	—			$	—
Foreign Currency Forward Contracts (2)			292				—				292				—
Investments held in Rabbi Trust for the Deferred Compensation Plan (3)			1,905				1,905				—				—
Guaranteed Investment Certificates (4)			47				—				47				—
Value Added Tax Credit Receivables (5)			7,062				—				—				7,062
Total Assets		$	97,086			$	89,685			$	339			$	7,062
Liabilities:
Foreign Currency Forward Contracts (6)		$	5,955			$	—			$	5,955			$	—
Total Liabilities		$	5,955			$	—			$	5,955			$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 2 — Fair Value — (continued)

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 subject to the requirements of SFAS 157 consist of the following (in thousands):

						Fair Value Measurments at December 31, 2008 Using:
						Quoted Prices				Significant
						in Active				Other				Significant
						Markets For				Observable				Unobservable
		Balance at				Identical Assets				Inputs				Inputs
		December 31, 2008				Level (1)				Level (2)				Level (3)
Assets:
Money Market Funds and Open-end Mutual Funds (1)		$	111,423			$	111,423			$	—			$	—
Investments held in Rabbi Trust for the Deferred Compensation Plan (2)			1,386				1,386				—				—
Guaranteed Investment Certificates (3)			858				—				858				—
Value Added Tax Credit Receivables (4)			7,501				—				—				7,501
Total Assets		$	121,168			$	112,809			$	858			$	7,501
Liabilities:
Foreign Currency Forward Contracts (5)		$	11,654			$	—			$	11,654			$	—
Total Liabilities		$	11,654			$	—			$	11,654			$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 2 — Fair Value — (continued)

The following table presents a reconciliation of the beginning and ending balances for the Company’s value added tax credit receivables measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2009 and 2008 (in thousands):

		Three Months Ended June 30,
Description		2009				2008
Beginning Balance, April 1		$	7,533			$	8,680
Included in earnings (1)			(111	)			(192	)
Purchases, issuances and settlements			(360	)			(1,250	)
Ending Balance, June 30		$	7,062			$	7,238

		Six Months Ended June 30,
Description		2009				2008
Beginning Balance, January 1		$	7,501			$	8,247
Included in earnings (1)			(320	)			(361	)
Purchases, issuances and settlements			(119	)			(648	)
Ending Balance, June 30		$	7,062			$	7,238

		2009				2008
Unrealized Gains (Losses) Included in Earnings Above
For the three months ended June 30		$	—			$	—
For the six months ended June 30		$	—			$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 2 — Fair Value — (continued)

Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs as described in Note 1, like those associated with acquired businesses, including goodwill and other intangible assets, investments at cost and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more of these assets are determined to be impaired. The Company’s assets measured at fair value on a nonrecurring basis (no liabilities) as of June 30, 2009 subject to the requirements of SFAS 157 consist of the following (in thousands):

						Fair Value Measurments at June 30, 2009 Using:
						Quoted Prices				Significant
						in Active				Other				Significant				Three and Six
						Markets For				Observable				Unobservable				Months Ended
		Balance at				Identical Assets				Inputs				Inputs				June 30, 2009
		June 30, 2009				Level (1)				Level (2)				Level (3)				Total Gains (Losses)
Assets:
KLA assets:
Goodwill		$	—			$	—			$	—			$	—			$	(629	)
Intangibles, net			301				—				301				—				(955	)
			301				—				301				—				(1,584	)
Investment in SHPS (1)			—				—				—				—				(2,089	)
Total Assets		$	301			$	—			$	301			$	—			$	(3,673	)

On June 30, 2009, the Company committed to a plan to sell or close its Employee Assistance and Occupational Health operations in Calgary, Alberta, Canada, which was originally acquired on March 1, 2005 when the Company purchased the shares of KLA. As a result of KLA’s actual and forecasted operating results for 2009, deterioration of the KLA customer base and loss of key employees, the Company expects to sell or close the Calgary operations on or before December 31, 2009 for less than its current carrying value. This decline in value is other than temporary, therefore, the Company recorded a non-cash impairment loss of $1.0 million related to intangible assets (primarily customer relationships) and $0.6 million related to goodwill included in “Impairment loss on goodwill and intangibles” in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 (none in the comparable 2008 period). In addition the Company estimates $0.6 million to $1.0 million of cash expenditures for the Calgary closing, including facility-related costs of $0.5 million to $0.9 million to be paid through the remainder of the lease term ending July 2012 and $0.1 million in one-time employee termination benefits. The exact timing and actual amounts of the facility-related payments are dependent upon the Company’s ability to sublease these facilities. If the events and circumstances regarding the Company’s ability to sublease the facilities change, these estimates would change. Income (loss) from operations for KLA for the three and six months ended June 2009 and 2008 were not material to the consolidated income from operations; therefore, the results of operations of KLA have not been presented as discontinued operations in the accompanying Condensed Consolidated Statement of Operations.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 3 — Goodwill and Intangible Assets

The following table presents the Company’s purchased intangible assets (in thousands) as of June 30, 2009:

														Weighted
														Average
		Gross				Accumulated				Net				Amortization
		Intangibles				Amortization				Intangibles				Period (years)
Customer relationships		$	4,476			$	2,238			$	2,238				6
Trade name			814				488				326				5
Non-compete agreement			163				163				—				2
Other			134				134				—				3
			5,587				3,023				2,564				6
Customer relationships held for sale (1)			301				—				301
		$	5,888			$	3,023			$	2,865

The following table presents the Company’s purchased intangible assets (in thousands) as of December 31, 2008:

														Weighted
														Average
		Gross				Accumulated				Net				Amortization
		Intangibles				Amortization				Intangibles				Period (years)
Customer relationships		$	6,711			$	2,596			$	4,115				7
Trade name			892				446				446				5
Non-compete agreement			610				610				—				2
Other			237				212				25				3
		$	8,450			$	3,864			$	4,586				6

Amortization expense, related to the purchased intangible assets resulting from acquisitions (other than goodwill), of $0.3 million and $0.6 million for the three and six months ended June 30, 2009, respectively, is included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations. In the comparable 2008 periods, the Company recognized amortization expense of $0.3 million and $0.7 million, respectively.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 3 — Goodwill and Intangible Assets — (continued)

The Company’s estimated future amortization expense for the five succeeding years is as follows (in thousands):

Years Ending December 31,		Amount
2009 (remaining six months)		$	455
2010		$	909
2011		$	827
2012		$	373
2013		$	—

Changes in goodwill, within the America’s segment, consist of the following (in thousands):

Years Ending December 31,		Amount
Balance at December 31, 2007		$	22,468
Contingent payment for Apex acquisition			3,076
Foreign currency translation			(2,353	)
Balance at December 31, 2008			23,191
Impairment on KLA goodwill (see Note 2)			(629	)
Foreign currency translation			(1,420	)
Balance at June 30, 2009		$	21,142

Note 4 — Financial Derivatives

The Company had derivative assets and liabilities relating to outstanding forward contracts, designated as cash flow hedges, as defined under SFAS 133, consisting of Philippine peso (“PHP”) contracts, maturing within 12 months with a notional value of $74.8 million and $107.0 million as of June 30, 2009 and December 31, 2008, respectively. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates.

The Company had a total of $3.0 million and $7.8 million of deferred losses, net of taxes of $1.7 million and $3.3 million, on these derivative instruments as of June 30, 2009 and December 31, 2008, respectively, recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) in the accompanying Condensed Consolidated Balance Sheets. The deferred losses expected to be reclassified to “Revenues” from AOCI during the next twelve months is $4.7 million. However, this amount and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts.

The Company also periodically enters into forward contracts that are not designated as hedges as defined under SFAS 133. The purpose of these derivative instruments is to reduce the effects on its operating results and cash flows from fluctuations caused by volatility in currency exchange rates, primarily related to intercompany loan payments. During the six months ended June 30, 2009, the Company entered into and settled forward contracts to sell $0.9 million U.S. dollars at fixed prices of 1.1 million Canadian dollars as well as forward contracts to sell PHP 175.0 million at fixed prices of Euro 2.8 million. During the six months ended June 30, 2008, the Company entered into a forward contract to sell 25.0 million Canadian dollars at fixed prices of Euro 14.6 million through December 2009. See Note 1 for further information on foreign currency and derivative instruments.

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 4 — Financial Derivatives — (continued)

The Company had the following outstanding foreign currency forward contracts (in thousands):

As of June 30, 2009				As of December 31, 2008
Foreign		Currency		Foreign		Currency
Currency		Denomination		Currency		Denomination
U.S. Dollars		Philippine		U.S. Dollars		Philippine
		Pesos 3,421,776				Pesos 4,645,715
Canadian Dollars		Euros 14,641		Canadian Dollars		Euros 14,641

As of June 30, 2009, the maximum amount of loss due to credit risk that, based on the gross fair value of the financial instruments, the Company would incur if parties to the financial instruments that make up the concentration failed to perform according to the terms of the contracts is $0.3 million.

The following tables present the fair value of the Company’s derivative instruments as of June 30, 2009 and December 31, 2008 included in the accompanying Condensed Consolidated Balance Sheets (in thousands):

		Derivative Assets
		June 30, 2009						December 31, 2008
		Balance Sheet						Balance Sheet
		Location		Fair Value				Location				Fair Value
Derivatives designated as hedging instruments under SFAS 133:
Foreign currency forward contracts		Other current assets		$	292				—			$	—
Total derivative assets				$	292							$	—

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 4 — Financial Derivatives — (continued)

Derivative Liabilities

June 30, 2009

December 31, 2008

Location

Fair Value

Location

Fair Value

Derivatives designated as hedging instruments under SFAS 133:

Foreign currency forward contracts

Other accrued expenses and current liabilities

$

4,973

Other accrued expenses and current liabilities

$

11,377

Derivatives not designated as hedging instruments under SFAS 133(1):

Foreign currency forward contracts

Other accrued expenses and current liabilities

982

Other accrued expenses and current liabilities

277

Total derivative liabilities

$

5,955

$

11,654

The following tables present the effect of the Company’s derivative instruments for the three months ended June 30, 2009 and 2008 in the accompanying Condensed Consolidated Financial Statements (in thousands):

														Gain (Loss)
		Gain (Loss)												Reclassified From								Gain (Loss)
		Recognized in AOCI												Accumulated AOCI								Recognized in Income
		on Derivative								Statement				Into Income (Effective								on Derivative
		(Effective Portion)								of				Portion)								(Ineffective Portion)
		June 30,								Operations				June 30,								June 30,
		2009				2008				Location				2009				2008				2009				2008
Derivatives in SFAS 133 cash flow hedging relationships:
Foreign currency forward contracts		$	1,371			$	(16,285	)		Revenues				$	(2,525	)		$	627			$	—			$	(223	)
		$	1,371			$	(16,285	)						$	(2,525	)		$	627			$	—			$	(223	)

Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six months ended June 30, 2009 and 2008
(Unaudited)

Note 4 — Financial Derivatives — (continued)

				Gain (Loss) Recognized
		Statement of		in Income on Derivative
		Operations		June 30,
		Location		2009				2008
Derivatives not designated as hedging instruments under SFAS 133:
Foreign currency forward contracts		Revenues		$	(53	)		$	—
Foreign currency forward contracts		Other income and (expense)			(421	)			—
				$	(474	)		$	—

The following tables present the effect of the Company’s derivative instruments for the six months ended June 30, 2009 and 2008 in the accompanying Condensed Consolidated Financial Statements (in thousands):

														Gain (Loss)
		Gain (Loss)												Reclassified From								Gain (Loss)
		Recognized in AOCI												Accumulated AOCI								Recognized in Income
		on Derivative								Statement				Into Income (Effective								on Derivative
		(Effective Portion)								of				Portion)								(Ineffective Portion)
		June 30,								Operations				June 30,								June 30,
		2009				2008				Location				2009				2008				2009				2008
Derivatives in SFAS 133 cash flow hedging relationships:
Foreign currency forward contracts		$	803			$	(18,052	)		Revenues				$	(5,546	)		$	3,462			$	—			$	(483	)
		$	803			$	(18,052	)						$	(5,546	)		$	3,462			$	—			$	(483	)